Will the next financial apocalypse be Canadian?

A lack of financial literacy among students leaves us vulnerable amid recent events

Will the next financial apocalypse be Canadian?

This February, the CEO of Home Capital Group stepped down amid allegations of broker fraud, which culminated in a violent stock price drop. Immediate comparisons were drawn between this case and the American housing market crash in 2008, and predictions of an impending Canadian economic collapse were strewn across major papers like Maclean’s, the Financial Post, and Forbes.

These predictions were problematic for two reasons. First, news sources that constantly flip between extreme fear-mongering and a disdainful casualness and overuse inaccessible financial terminology make it extremely difficult for students to understand our financial system.

Secondly, whether or not this is a financial crisis, students will be the first demographic that the Home Capital fiasco will affect, regardless of whether we are paying attention.

Home Capital is an alternative mortgage lender that is part of a larger group, Home Trust Company. Despite being the largest of its kind in Canada, the company is effectively a minnow in the Canadian financial pond when compared to traditional lenders. As an “alternative” lender, they lend money to clients who are often turned away from traditional banks due to uneven credit scores — including students.

Two years ago, Home Capital disclosed that 45 of its mortgage brokers had been falsifying borrower income and employment information. Then, in April 2017, the Ontario Securities Commission charged the company for failing to inform their investors about the implications of these actions. This caused investors to pull out from the company, and even after a $2 billion line of credit, the company is in danger of closing.

The subsequent panic of those who invested in the company was understandable: a similar series of events sunk the American economy in 2008. At the time, mortgage brokers were increasingly pushing mortgages to borrowers with shaky credit histories who would be unable to pay them back. Big banks would then package these shaky mortgages into allegedly low-risk, subprime securities and people would invest money in them, betting on the fact that they wouldn’t fail. The banks were able to disguise the fact that these mortgages were given to borrowers with falsified income statements and bad credit history, due to to ratings agencies giving ‘A’ ratings to bad mortgages. Eventually, people failed to pay their mortgages, and millions of Americans ended up homeless and losing millions. The entire economy collapsed.

At the same time, it can be argued that people are wrong in thinking that this is the start of that same pattern in Canada. Home Capital is a relatively small mortgage lender in a very niche part of the market. They only lend to individuals that had been rejected by the larger, heavily-regulated lenders, and they were held accountable for it, something that never happened in America circa 2008.

What this does prove is that there is a growing need for financial literacy, especially amongst students. It is easy to believe any version of the facts that are being thrown at you, especially ones that include phrases like ‘collateralized debt obligations’ and ‘low-risk, subprime securities’. Regrettably, this can lead to serious implications being lost in the financial terminology.

If Home Capital, the largest alternative lender is going to incur losses, it will be harder for other alternative lenders to access funds, resulting in higher mortgage rates. This is problematic for adults who have only been out of school for a couple of years and are unable to obtain a mortgage from traditional banks.

Now, most of us are probably not going to be buying a house right out of school, and — fingers crossed — some of us might never have to use an alternative mortgage lender like Home Capital. But the need for us to understand a financial system that can be incomprehensible to outsiders is more important than ever. Insufficient-funds fees, short-term teaser interest rates, and payday loans, while seemingly innocuous, are common money pitfalls that students regularly fall into because of a lack of financial understanding.

It is idealistic to say that every student should have an in-depth knowledge of such fascinating topics as the Canadian housing market, the intricacies of mortgage lending, and the muddy depths of bank transaction fees. But, as millions of people learned in 2008, these structures have a huge effect on our lives. At the very least, we have an obligation to try.

 

Claire Velikonja is an incoming second-year student at the Faculty of Engineering studying Chemical Engineering.

 

The real cost of academia

How divided time and resources impact working U of T students

The real cost of academia

From September to April, a U of T student’s schedule revolves around the demands of their academic calendar. Therefore, discounting summer enrolments, the last exam of the winter term typically marks an undergraduate’s return to their hobbies or extracurricular ambitions.

However, while some students head to familiar childhood homes or unfamiliar vacation spots, many must stay in the city to meet other ends.

Students who live on their own and foot their own bills — academic and otherwise — do not get to follow the same pattern of vocation and then vacation as some of their peers. These students often resort to minimum wage jobs in food services or retail to survive the four months without the financial support offered by OSAP. Though the anticipated increase of the provincial minimum wage has garnered attention in the press and around dinner tables, the lives of the students who survive on it have not.

The idea that every student at an illustrious college enjoys the same liberties is as damaging as it is false. Young, financially insecure adults pursuing higher education are swallowed whole by unfeasible agendas and exhausting realities. The difficulties they face with their finances in the present actively reduce their prospects for the future.

In February of 2017, Vanmala Subramaniam wrote a piece for Vice on the cost of living in Toronto. Subramaniam highlights how outrageous it is to consider saving money in Toronto on an income of less than $45,000 a year, drawing attention to the approximate 13 per cent rise in the cost of rent and 36 per cent rise in the cost of public transportation since 2008. Moreover, Subramaniam mentions that saving money is even more ridiculous for young people living in a metropolitan city who rightfully intend to experience as much of it as they can.

Not every student has the means to experience the city in the same way. Students generally select homes to rent based on location and cost. Apartments close to schools like U of T and Ryerson — and thus closer to the iconic aspects of the metropolis of Toronto — tend to have higher rental rates. Yet cheaper places tend to cost roughly the same amount when accounting for TTC fees and the time lost on commutes.

Generating a liveable income, even for a single-person household, relies on equal parts pragmatism and luck. In 2012, Jacob Serebrin wrote an article for Maclean’s about full-time university students with jobs. Serebrin states that 18 per cent of Canadian undergraduates work over 30 hours per week.

When working minimum wage jobs, one also has to realistically account for the ways corporations cut financial corners. In 2014, Tavia Grant of The Globe and Mail reported that more and more part-time shifts have been cut down to the 15-hour work week to help employers cut costs. Other tactics include scheduling shifts that come with unpaid breaks, or sending employees home early.

Seeing as the cost of living has not decreased, it is reasonable to suggest that a number of students with part-time jobs struggle to get enough hours, and thus must take on second jobs. The first job covers living expenses, like rent and phone bills, while the second covers things like transportation, groceries, and entertainment. Working four-hour mornings at Job One, taking a four-hour afternoon break, and then working four-hour evenings at Job Two is just the reality of my summer in Toronto.

And this work, though it pays the bills, can prevent students from applying to unpaid internships or even other paid positions that could be beneficial to their careers. Independent students simply don’t have the ability to put the future before the present.

Students living in these conditions likely have less time to revise and submit resumes, CVs, and applications for the academic positions that their peers can more easily complete. Since the workforce expects students to have exchanged precarious academic labour for experience, in the form of internships, students without that experience are less likely to be hired.

This is not to mention that a truly ambitious student will want to participate in as many networking and academia-related events as they can. This can pose a problem if the events are not free, require a certain standard of dress, or cut into hours where the student could be making money.

Even when they are able to attend these events, busy students may not be as prepared as peers who have had time to brush up on the topics being discussed. And when someone shows up to an event after dragging themselves from the TTC and various places of work, a groggy brain and a wrinkled outfit don’t leave strong impressions on potential employers.

Post-secondary education is geared toward the success of those who can devote every waking second to being a student, not those who must also work at providing for themselves. The things that working undergraduates have to do to survive inhibit their ability to utilize all that an academic institution can offer, setting them back in terms of skill and experience. Though higher learning is sometimes depicted as a haven of equality and equity, the living conditions of working students challenge the truth of this ideology — it is still extremely difficult to be a working student.

 

Jenisse Minott is an incoming third-year student at UTM studying Communications, Culture, Information, and Technology.

The root of all evil?

Cashing in on the alleged threat of campaign financing

The root of all evil?

For quite some time Donald Trump has been the frontrunner for the Republican nomination to the US presidency. After hitting a brief setback in Iowa, Trump won in New Hampshire, South Carolina, and then Nevada. Heading into ‘Super Tuesday,’ he is favoured by 12.9 per cent nationally compared to Ted Cruz, and by 16.5 per cent over Marco Rubio.

Conventional wisdom would have it that Trump, the billionaire real estate magnate, would surely outspend the Republican field, to the detriment of democratic politicians. After all, we’re told that money buys politics, especially in the US.

The reality is that in eight months of campaigning Trump and his allied political action committees (known as PACs) have raised $27.3 million. This is tied with the relatively unknown John Kasich for the least amount of financial contributions to candidates in either party. To put this in perspective, consider that Cruz, Rubio, and their respective PACs have raised a combined $188.8 million, yet are in all likelihood just a few weeks away from losing the nomination to the controversial political amateur, Trump.

Furthermore, the Trump campaign and pro-Trump PACs have spent $25.5 million, which is the second least among the remaining candidates.

In Canada, we have also been told that money taints elections; however, election results have not shown this to be the case. In the 2015 federal election, the Conservatives had a fundraising advantage, and yet the Liberals won a majority.

If campaign financing is not the corruptor of all things democratic, how, then, should we understand its role in politics?

Campaign financing is a neutral and legitimate form of political expression, just like any other.

When it comes to advertising, there is merely a difference in degree, not in kind when comparing the running of a 30 second television commercial and, say, speaking into a microphone at an event. The only thing money decides is how many people hear the speaker.

Additionally, there is more than enough cash to go around so that no single candidate, party, or political ideology has an insurmountable advantage. For every Koch brother, there’s a George Soros. Small but enthusiastic donors can still prove formidable, as Bernie Sanders’ unlikely success has shown. His campaign has raised $96.3 million thus far, without the aid of a PAC.

Campaign spending is not a determinant to voter turnout either; in 2012, Mitt Romney outspent President Obama and won the white vote by 20 per cent, but Obama scored decisive victories among the black, Hispanic, and Asian votes, who together made up almost 28 per cent of the electorate, their largest share ever.

Finally, thanks to traditional grassroots activism and social media, those with limited funds can achieve national recognition without ever having to buy a billboard or television spot. Donald Trump has more followers and fans on Twitter, Facebook, and Instagram than any of his competitors, and other than Bernie Sanders, he is the only candidate whose rallies can fill professional sports arenas.

The power of social media and on-the-ground organizing has also been demonstrated by the activist movement Black Lives Matter.

An election, after all, is a competition of ideas, and consequently we should ensure that more of them are shared.

Through sustained social media campaigns as well as protests, Black Lives Matter has managed to drive the conversation around criminal justice reform for over two years, with no signs of slowing down.

This is not to naïvely say that politics is free of corruption, or that money has no influence on our leaders. But if we want to clean up politics, perhaps we should look deeper into what happens after elections. This includes staying vigilant and redirecting our attention to when foreign interests make donations to a cabinet secretary’s private charity, when a justice minister’s husband works as a lobbyist, or when the banking industry and its federal regulator share a revolving door.

That is the kind of money in politics we should be vigilant of: the money that trades hands during governance, not during campaign season. A campaign, no matter how loud, ugly, or chaotic it gets, is still the heart of democracy. An election, after all, is a competition of ideas, and consequently we should ensure that more of them are shared.

Emmett Choi is a fifth-year student at Victoria College studying philosophy and American Studies. His column appears every three weeks.